A Guide to Private Equity - BVCA admin

Enterprise Investment Scheme
The Enterprise Investment Scheme which was set up by the UK government to replace the Business
Expansion Scheme (BES) and to encourage business angels to invest in certain types of smaller
unquoted UK companies. If a company meets the EIS criteria (See http://www.hmrc.gov.uk/eis/), it
may be more attractive to business angels, as tax incentives are available on their investments. Under
the Enterprise Investment Scheme, individuals not previously connected with a qualifying unlisted
trading company (including shares traded on the Alternative Investment Market (AIM)) can make
investments of up to £500,000 in a single tax year and receive tax relief at 20 % on new subscriptions
for ordinary shares in the company, and relief from CGT on disposal, provided the investment is held
for three years.
Venture Capital Trusts (VCTs)
Venture Capital Trusts (VCTs) which are quoted vehicles to encourage investment in smaller unlisted
(unquoted and AIM quoted) UK companies. Investors receive 30% income tax relief on VCT investment
on a maximum investment amount of £200,000 in each tax year provided the investment is held for
five years. Shares in VCTs acquired within the annual limit are also exempt from capital gains tax on
disposal at any time.
For further information on the above UK government grants and others available visit the website
of the Business Links at www.businesslink.gov.uk. In addition to providing advice on the various
grants available to SMEs and growth companies the Business Links provide advice, help and an entry
point to the various schemes run by the Department for Business, Innovation and Skills (BIS). New
businesses (particularly those using new technology) can get help with premises and management
from the various Business Incubation Centres in the UK or from one of the UK Science Parks. You
may also be eligible for EU grants if you are in an innovative business sector or are planning to operate
in a deprived area of the UK or a region zoned for regeneration. Apart from Business Links your local
Chamber of Commerce and town hall should have lists of grants and available property.
Business angels
Business angels are private investors who invest directly in private companies in return for an equity
stake and perhaps a seat on the company’s board. Research has shown that business angels generally
invest smaller amounts of private equity in earlier stage companies compared with private equity
firms. They typically invest between £20,000 and £200,000 at the seed, start-up and early stages of
company development, or they may invest more than this as members of syndicates, possibly up to
£1.5 million. Business angels will usually want a “hands-on” role with the company that they invest in,
maybe as an adviser and/or a non-executive director or they may even take on an executive role. Many
companies find business angels through informal contacts, but for others, finding a business angel
may be more difficult, as the details of individual business angels are not always available. The British
Business Angels Association (BBAA) lists its members on its website (www.bbaa.org.uk) so this is a
good place to start to help you find business angel investor networks in the UK.
Corporate venturing
Corporate venturing has developed quite rapidly, albeit sporadically, in recent years but still represents
only a small fraction when compared to private equity investment activity. Direct corporate venturing
occurs where a corporation takes a direct minority stake in an unquoted company. Indirect corporate
venturing is where a corporation invests in private equity funds managed by an independent private
equity firm. Corporate venturers raise their funds from their parent organisations and/or from external
sources.
An introduction to private equity
A Guide to Private Equity 11